Boom To Bust in a Week! Who to Believe?

This month saw lots of property commentary but very little of it had any substance. First, the Sydney auction clearance rate dropped from over 90% to almost 70%. Then a Macquarie Bank research paper was released predicting a national house price decline of 7.5% from March next year. Then a Westpac mortgage interest hike of 20 basis points was quickly followed by rate hikes from all big four banks. To sections of the tabloid press this spelt trouble and their headlines trumpeted panic and mayhem.

As a regular watcher of real estate over the last 25 years, the way the media reports the ebb and flow of the property market has become more and more frantic. Yes, it does look like top end Sydney sales have hit their peak and will start to flatten, if not recede a small amount. Yes, there could be an oversupply of new units coming online in Brisbane and Sydney. Yes, if the Chinese economy does get into trouble or the FIRB rules are changed it will further affect this unit market. Yes, the major banks increased interest rates as they claim the new legislation more capital holdings will increase their costs and they want to pass these costs on to the consumer (Phoooey and Poppycock!).

The problem mainly rests with the inflammatory way editors word their headlines. In our modern world we are over stimulated with a tsunami of messages, ads and logos. The Internet and print media have to resort to overblown, attention grabbing headlines. It’s either a bubble or a meltdown. Forget about gradual fluctuations over time of an organic market reacting to various causes and effects.

Another difficulty is the fractured nature of the market. One area in Australia can be experiencing a downturn while another is still seeing price growth and strong demand. For example, lets assume that Sydney top end or Brisbane units are coming off the boil while at the same time lifestyle destinations like the Gold Coast and NSW regional coastal towns are seeing unprecedented demand. As predicted by demographer Bernard Salt, retirees cashing in from the city and downsizing to a retirement nest will be a constant for the next few years at least.

The one good thing from all of this recent sensationalised media reporting is that it will cool the speculative nature of a partially over-heated market. That can only be a good thing. As you can see in the graphic attached, Australia is now the highest mortgage debt as well as highest income-to-property-value ratios in the western world. This is a bad thing for our economy when so much of our wealth lies dormant in property and it is a hard market for young people to enter easily.

Nearly all of these articles about doom and gloom were not catastrophic once you drill down into the content. Many respected commentators have now stated that the chance of a property bubble and price crash is either extremely remote or non-existent. Yes, slight corrections will happen is some markets. Recent buyers in the Sydney or Melbourne market may have purchased at the top of the cycle and they could experience a slight pull back. This should not concern anyone who are in a long term buy and hold. If you are not in Sydney or Melbourne try to access local knowledge and experience in your own area – and don’t react to the hype!